A new federal tax credit rewards cleaner transportation fuels, and it’s putting renewed demand behind soybean oil.
There’s a new federal tax credit supporting how clean fuels get made in this country, and it’s built around one central idea—the cleaner the fuel, the bigger the reward.
The 45Z Clean Fuel Production Credit is a federal income tax credit designed to encourage domestic production of fuels like biodiesel, renewable diesel and sustainable aviation fuel. Instead of a flat incentive, it pays out based on carbon intensity, rewarding fuels that do the most to cut greenhouse gas emissions.
The lower the carbon footprint of a fuel, the greater the tax credit available to the producer making it. Soybean oil is one of the feedstocks that can help bring that footprint down, and that’s good news for the farmers who grow it, because it means more demand for U.S. soy.
A different kind of incentive
45Z replaces the old biodiesel tax credit, and the mechanics are different. The former credit rewarded blending regardless of where the fuel or feedstock came from. This one ties its value to how much a fuel actually lowers emissions and applies only to fuel made domestically from feedstocks grown or produced in the United States, Canada and Mexico.
Limiting the credit to these feedstocks gives U.S.-grown soy a built-in advantage over imported alternatives. Congress also removed the indirect land use change penalty in the latest version of the policy, a change that had previously put crop-based feedstocks like soybean oil at a disadvantage against waste-based options such as used cooking oil. With that penalty gone, soy competes on more level ground.
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